How to Spot a Property Scam

Lawyers are alerting property investors about the risks of falling for buy-to-let scams that could cost them tens of thousands of pounds.

It’s sad that as the country tightens purse strings as we drop into recession, crooks and fraudsters make an even more determined effort to scoop up ill-gotten gains from innocent investors.

The general rule is always to walk away from an opportunity that seems too good to be true, but many investors get caught in the moment and recklessly hand over more money than they should.

And why not? The lies and half-truths spun by the scammers are designed to coax the most sensible landlords into opening their wallets.

If you are worried about scammers, a dedicated team of lawyers is out to stop them from preying on the innocent.

From their cases, the team has put together a checklist for investors that reveals how a property scam works and how to avoid getting mixed up with crooks.

Tell-tale signs of fraudsters

The lawyers and investigators at Manchester law firm Primas have uncovered several scam property deals - coincidentally, they follow the same template.

This means someone who understands the scams can spot the warning signs that hint something is not quite right with the deal.

“Each case we’ve looked at seems to follow the same series of events and looks suspicious from the outset!” says the firm:

• The scammers set up a company with limited assets to manage the finances of a specific development.
• The fraudsters buy an easily divisible property, like a run-down hotel or student housing.
• The property is divided into individual rooms, which are sold to investors
• While the rooms are sold, the developer pays investors interest to give the impression that work at the site is ongoing
• Once the rooms are sold, the developer goes to the wall leaving no funds to compensate investors

Many target investors live overseas to limit their chances of checking on the development.

In a case study, the law firm reveals how the scammers worked on a recent development.

How the scammers work

“A group of overseas investors in Hong Kong were approached to invest in an alleged apartment block in Manchester, advertised as in an affluent area with superb travel links to the city centre,” says the law firm.

“Each apartment was sold as an investment property which would obtain significant rental value. In reality, the development was a long-standing hotel in a back street of a quiet neighbourhood.

“The scheme operator had no planning permission to develop the hotel into the advertised apartment block. We discovered that the property had undergone no development and was indeed still being advertised and run as a hotel.”

Under advice from lawyers, the investors set up a company that applied to the courts to take over ownership of the hotel from the developers. The scammers were about to strip the scheme’s assets, so no money was available to repay investors once the business went into administration.

The investors have the building and will regain some of their lost money.

Hannah Wilson, a commercial litigation associate at Primas Law, said the cases the firm is currently working on involving sham property schemes in the North West appear to follow a similar pattern -  they seem to be disused hotels marketed as apartment developments.

"We have been instructed on multiple developments in Manchester and Blackpool, but we’re also aware of similar cases in other cities, too," she said.

‘We buy any house’ scams

If you want to sell a letting property but can’t afford to wait weeks or months for the money, a company offering to buy for cash seems attractive.

However, many firms advertising to buy homes quickly are lead generators gathering data to sell to third parties.

Many of these companies try to push down valuations by sending their surveyor, who will offer a forced sale price up to 40 per cent less than the open market value. Genuine firms will agree to an average from three estate agents or an independent valuation from a qualified surveyor.

Most companies offer fee-free deals, but some step in near completion and add extra fees or try to reduce the price.

Property lawyers CJ Hole warn: “If a company asks for money upfront or requests that you sign an agreement with a ‘lock-in’ or ‘option’ clause, you should be wary. ‘We buy any house’ companies will never pay full market value for your property.

“So, if you’re being offered 95% or even 100% of your property’s market value, you may become the victim of a scam.”